Law and Medicine– Part 8– Contract Magic– Section Two

Section II—The Conscience of the King

Some vendors start negotiations with a pissing contest over which contract format to follow—their standard or yours.  The word “standard” is meant to imply certain things—that it is like every other contract you’ve ever read, so you don’t need to bother reading it.  And it isn’t negotiable anyway. 

If you accept the implications, it wouldn’t matter whose standard is used.  It is either full of the same clauses everyone uses, or it is a take it or leave proposition, like when you buy an airplane ticket.  But I didn’t mind letting the other side take the first step.  It would give me a sense of with whom I was dealing.  You can tell a lot about an organization by reading their contracts.

Some contracts scream, “It is all about me!”  The temptation is to scream back, “No, it is all about me!”  The challenge is reaching a contract that assures, “It is all about us.”  Funny how the marketing materials always say the latter, but the contracts say the former. 

I had this notion that the Legal Department should function as a kind of conscience for the organization, an ironic notion, in a way, coming from me.  I often viewed law school as less a learning process and more a process of behavior modification intended to erode one’s sense of certainty, including (without limitation) morals.   The point was to train us to fit into the Legal System, to be advocates, regardless of how we personally felt about the causes we were advocating.  The System would sort it out, after we put up a good fight.  The System would decide what is just, fair, and true.  The whole process, with deep roots in trial by combat, was originally structured to place a heavy value on competition.  A zero-sum game, with clear winners and losers.  I’m not claiming a moral high-ground by invoking the emotionally charged word “conscience”.  What I mean is the Legal Department should act in way that bolsters the values of the organization, whether those values be beneficent, mercenary, or mercurial.  A gatekeeper.  The Legal Department serves as the guardian of boundaries, assuming one of the roles played by the god Mercury. 

Lawyers are trained in certain skills that prepare them for this function.  They are trained to analyze case law, a discipline not unlike the study of literary criticism.  What is the story being told?  What does it mean?  How do the events test the character and influence choices?  What does the character learn from the story?  How has the character changed?

Lawyers are also trained to see gradations and variations of how to reach a correct result in context of specific circumstances.  They are trained to see how slight variations in a story change the meaning and outcome.  They are trained to weigh and balance contradictions.

But legal training in America mostly involves taking those tools and weaponizing them, deploying them in combat, with the goal of devastating the opponent.  I’m trying to beat those swords into plowshares.   

 

— trying to beat those swords into plowshares…  It it a beautiful dream, but a difficult task, maybe one beyond me, like the drawings above, full of wild ambitions that don’t fully cross the barrier between dream and waking.

So, maybe I had an overly romantic view of Legal Department functions.  I was working in a legal department I had built from the ground up, starting at a time when my organization was relatively small and ending at a time when it was relatively large.  I was the lawyer, but I was also the Risk Manager.  I wrote the policies and procedures.  I drafted many rules and interpreted them.  And I had a history with the organization, long before I became their lawyer.  I was a mythmaker, a dreamer, a storyteller, a fictioneer.  A conscience?  Perhaps that’s too lofty and pretentious a term.  Everyone is necessarily the hero of his own imagination.  The line comes from Franz Kafka, who also was a lawyer and part-time spinner of weird tales.

One day I got handed a contract for an exotic new kind of neonatal transport device.  The document was written in 5-point font with halftone grey lettering printed on both sides of semi-translucent paper, so the words bled into one another.  I viewed the format as a dare.  And an insult.  The contract said much about the corporate culture of a vendor, even before I read it. 

I sent a memo to the manager who initiated the review.  “Do you really need this contract?” I asked.  “Or can you get it different vendor?  I haven’t read it yet because it is unreadable, but I know that if I could read it, it would be as totally unreasonable as the format, and likely a waste of time.  Do you really want to do business with this kind of vendor?”

The manager wanted the transport carriage.  It was appealing to her for its newness, like a kid that wanted to be the first one on the block with the latest high tech toy.  The newness of the product was one of the qualities that made me all the more wary.  I wasn’t optimistic I could strike a deal.  The vendor had already signaled its intent to take advantage of us at every opportunity.  Besides, I wasn’t optimistic by nature.

I didn’t need tongue of dog to predict I’d find a complete and total disclaimer of warranty. The wording of this clause might be appropriate for an “as is, buyer beware” purchase of a used generic baby stroller offered for dirt cheap at a rummage sale—even though this contract was dearly priced like it was top of the line and brand new. 

To add insult to injury, the total disclaimer of warranty was coupled with a broadly worded hold harmless, indemnification clause.  It went far beyond the bounds of anything reasonable.  Not only were we required to cover the vendor for any harm caused by our wrongful acts, we were required to protect the vendor against their own wrongful acts.  I did a memo to the manager explaining the implication.  “This means, in simple terms, not only does the vendor refuse to promise the product works, but if the product turns out to be dangerous and if it harms a third party, then the vendor expects us to pay all damage caused by the defective product.  If we were talking about a lawnmower, it could be one that spewed gasoline whenever you used it, while firing off white hot pieces of itself.  Even if the vendor knows about the defects and the dangers, and verbally lies to us, we’re required to protect them from their own lies.  It might set the neighbor’s house on fire.  If the neighbor sues the vendor, these contract clauses obligate you to pay the vendor’s lawyer bills, and the neighbor’s damages when the vendor’s lawyer loses.”

The memo continued:  “Contracts almost always disclaim liability for indirect and consequential damages, but this contract disclaimed liability for the buyer’s direct damages.  So maybe this thing you were buying might turn out to be a total piece of junk—but if you accept this provision, it means you have no remedy at all if the vendor fails to deliver, even when there is a flagrant and inexcusable breach.”

“There are many variations on these themes, and most contracts deal with similar issues to some degree.  Few contracts are without sin, though few are as villainous as this one.  I’d seen contracts as bad as this before, though not often.”

“There’s a technical legal term for this kind of contract, but it involves an expletive.” 

The extremes in this contract, something that could have from the land of Mordor, were enough to give me a sense of license in writing a casually worded, sarcastic memo to the manager. 

It’s tempting was to say tongue of dog was used in the drafting of the vendor’s contract, but that’s just me, unable to pass up a wisecrack.  Sometimes contracts like this are the work of beginners who don’t know any better.  Sometimes they’re the work of polished professionals who use it strategically to wear the other side down, hoping they will miss something important buried in the onslaught of unreasonable terms.  Sometimes they’re is the product of insufferable arrogance.  No doubt the vendor viewed me this way.  Sometimes they’re the product of a party that believes everyone is out to mercilessly grab the maximum amount for themselves, and anyone who fails to behave this way deserves to be taken advantage of.  Sometimes that attitude is explicitly part of the corporate culture, an attitude that can be found lurking in plain sight in regions of our civilization.

I couldn’t resist peppering my memo to the manager with wisecracks, along with frank appraisals, sometimes using flamboyant descriptions of the harm the proposed contract might wreak.  Sometimes I did these memos this way to drive the points home.  And sometimes I did them this way it because it was my way of breaking the monotony of reading contracts and writing memos when I would rather be writing comic books.  And I had delusions of literary grandeur, partly inspired by J.G. Ballard, one of my favorite authors, who often found Art in the humble interoffice memo. 

I’d written the memo intending it for the manager only.  But the manager really didn’t want to deal with the contract or its problems, and simply passed my memo, unfiltered, to the vendor.  Some managers were like that.  They’d view contracts as if they were bizarre and undecipherable, something for me to deal with alone.

And I can’t say I blamed the manager for viewing contracts that way.  On my first day of law school, I was told to read a 40-page assignment before a class that was scheduled to start in 5 hours.  No sweat, I thought.  At that time my top reading speed was around 1,500 words a minute, and I was not unaccustomed to complicated prose.  But after the first hour, I found myself stalled on the first page of the assignment.  There’s a reason legal prose is so incredibly difficult, even beyond the use of obscure terms and torturous sentence construction.  In the practice of law, the meanings of words and phrases continually change according to context, so legal draftsmen strive for the highest possible degree of specificity, creating prose as linguistically dense as diamonds, though surely not as pretty. 

The vendor was offended by my memo. 

I got called on the carpet by one of the organization’s officers, who said to me bluntly, “Make this contract happen.  Lawyers don’t run the Hospital.  Your job is to tell me how to accomplish what I want to do, not to tell me that I can’t or shouldn’t do it.”

Surely, that wasn’t the time to talk about acting as the conscience of the organization, or the guardian of boundaries.  Nor was it the time to talk about the way lawyers have specialized training that can be used to coordinate with managers and officers to guide operations.  Nor was I gifted with prophetic visions of a new discipline destined to evolve many years later under the flashy phrase, “Enterprise Risk Management”, which embraces some of these notions.

So, I gave him the universal lawyerly response.  “It depends.”

I sat down with the manager, to set some boundaries for how we might proceed.  He was an aggressive guy, very focused on getting exactly what he wanted.  He liked to keep things simple.  He knew exactly what he wanted.  He didn’t care much for subtlety.  His superiors liked that kind of clear vision and the way he aggressively pursued it.    

I sat down with him to focus on goals and set boundaries without being too mercurial, to sort through the kinds of decisions that were business in nature, and those that were legal.

I pointed out that the contract had an exclusivity clause.  We couldn’t buy Infant Transporters from any other vendor during the two-year term, but the price could change after the first six months.  And the phrase “Infant Transporter” was broadly defined in a way that could include all pediatric stretchers—not just the high-tech variety that was the subject of this contract.

I said, “There’s no way I’ll ever sign off on this combination of contract provisions.  It makes us too vulnerable.  Maybe we can accept some level of exclusivity, but the scope of it has to be very narrowly defined.”

“That’s something you need to work out.”

“I suggest you hang tough on getting rid of exclusivity.  And then there’s the price.  I can’t tell you what the price should be for the whole two years, but there needs to be a fixed amount stated.

“The lack of warranty and the indemnity clause are huge problems.  This contract says we bear all risks arising from or related to the product.  That means we’re on the hook for their negligence, their product defects and their harmful intentional acts.”

“Yeah.  And their position is that the product is so new and so innovative, they don’t want to be responsible if our staff can’t handle it the right way.  They say the patients and the staff are going to be under our control, so we should pay any damages.”

“Think of it this way.  What this clause does is create something like an insurance policy. The insurer comes in and pays the cost of defense and any damages caused by the vendor’s negligence.  Only it isn’t an insurance company under this contract—it’s the hospital.  And the vendor isn’t paying us an insurance premium.  We’re paying them.”

“You work it out.  I’m telling you, this product will give us a huge marketing advantage.”

The manager had a leadership style that consisted of keeping things simple, and casting blame when simplicity didn’t work.

Next, I spoke to the vendor’s lawyer— and then, when I couldn’t get anywhere with the lawyer, with one of the vendor’s officers, after the vendor’s lawyer gave me permission.

And then I got hit with a Marketing pitch. 

The vendor’s officer said something to the effect that their company has an impeccable reputation, with thousands of satisfied customers.  They invited us to ask any of their customers for confirmation, and they couldn’t understand why none of their other customers had problems with their contract. 

“Well, maybe they didn’t struggle to read the 5-point font sized grey print.”

The vendor’s officer replied, “You will be completely satisfied, if you give us the chance.  We perform at the highest standards, and our products far exceed industry standards.” 

“And that’s great.  That’s the kind of stuff I was looking for in the contract.”

But then they backtracked, and said, “Look—we can give you these assurances, but we can’t put them in the contract.” 

No surprise there. 

Marketing itself is another form of magic, but one commonly understood to include hefty percentages of bullshit.  One expects different standards in a contract.  The contract itself has an “Integration Clause”, something that nullifies all the flashy pamphlets, all the prior contract drafts, all the advertisements, and especially all the verbal representations.

No canny lawyer is going to water down the Integration Clause, or use lofty marketing phrases in a contract.  These phrases are Gotchas.

I reopened negotiations.  My bid for cooperation might be viewed as a sign of weakness, along with any concession on a contract point I’d previously denounced.  My wisecracks haven’t helped, even though they weren’t intended to go outside my organization.  My efforts to enliven my memos, a personal entertainment, might have antagonized an opponent who might be smarter and better trained, a law review editor, top of his or her class, earning five times my salary.  But I put on a smile and prepared to run the gauntlet of stilettos, point by point.

It was time to be an advocate, another part of my training, to fight, and get the best deal I could, understanding that some points would have to be conceded.  As I’d been reminded, lawyers don’t run the Hospital. 

Some lawyers strut to the bargaining table full of bluster, and threats —freely exaggerating their positions, posturing, artfully concealing, or lying outright while daring you to disbelieve them.  They are, after all, wizards, capable of creating their own realities.

 

First, the vendor sent a big guy to do their negotiations, a former college defensive tackle who shaved his head and still ate as if he were burning 9,000 calories a day, becoming a massive, immovable object.  He listened to everything I had to say, but wouldn’t budge on any of my requested changes.  He knew I was in a tough position, with clearly unequal bargaining power.  I caved in on a couple of outrageously bad provisions—and that was strategic, because the clauses were so bad and the bargaining power was so disproportionate, I had a fair degree of confidence that most of the time, the courts would find the clauses too repugnant to enforce.  And sometimes a quick surrender is a way to lull your opponent into letting down their guard.  But this guy took it as a sign of weakness. 

The vendor’s lawyer said, “On the indemnity clause, we’ll carve out our negligence as an exception.  Will that work?”

“It doesn’t go far enough.  It still leaves us paying for product defects and willful acts that cause injury.  I don’t even want any indemnity clause.”

“The way this product works, problems will never be our fault.  But we can’t depend on the courts to do the right thing, so we need to have indemnity.”

“I don’t trust the courts to do the right thing all the time either– but I won’t contractually agree that they’re always wrong, and I’m not asking for a contract that says the hospital is never wrong.  I’m looking for fairness.”

Even with my concessions, I still couldn’t get the things I really needed.  I wouldn’t surrender without them.  The talks floundered. 

For the next round the vendor replaced the giant with a slender woman decked out in diamonds.  She gave all kinds of signals that she was eager to surrender.  The pointless talking had gone on for too long.  And that was a tactic as well.   Her eyes were as hard and cold as her diamonds.  I guess they helped her cut through dense prose. 

She accepted my proposals, moving point by point, but then, after accepting, she would ask for something modest in return, a slight change, something that seemed utterly inconsequential, a small exception for a specific contingency, something highly unlikely to happen.  I would hand her the change, a gesture that might help the vendor to save face when giving up after fighting for so long and so hard.  But once the slight change was accepted, she hit me up for another.  Then another.  The previously settled discussions were subtly revived, with new variations.  It is the lawyerly equivalent of nagging.  It works like water sluicing a path through a boulder.  It’s a technique I should have used more with the football player.  And I should have been more like the football player when dealing with the sparkling, ice-eyed woman.  You have to strike a balance between the two approaches.

The form you take in battle is shaped by your opponents.

The negotiations had started using the vendor’s standard form of contract.  I countered with my own form of standard modifications, a document that typically would run one to five pages.  It was structured to be the final word on what the parties agreed to. 

After many years of dealing with contracts, I knew where to find the fault lines and target the stress points.  My standard amendment typically had to address any matter essential to hospital operations, including, without limitation:

 

Warranties.

Right to terminate.

Automatic renewal.

Standards for performance.

Choice of law.

Insurance.

Indemnity.

The phrase “without limitation” is essential, one of those magical incantations that can change the meaning of a contract.  If I failed to use the phrase before the list in a contract, it would mean the “matters essential to hospital operations” would be only the ones listed.  Several other things I would consider essential include, without limitation:

Intellectual Property.

Damages.

Sub-contracting.

Discrimination.

My standard contract amendment would bring focus to the issues in contention.  Even if my standard amendment wasn’t accepted outright, it would serve as an outline of things that needed to be discussed.

We did work out a deal.

Three months later, I got a plea from a manager begging me to get them out of the contract. 

The vendor had taken to testing us, to see how much crap we would tolerate, how much shoddy work they could foist off, treating the contract as a badge of entitlement, baiting us, daring us to sue, the same way they had dared us to read the 5-point grey print, knowing the cost of litigation was more than the value of the contract, and signaling they weren’t afraid of a lose/lose resolution, just so long as we didn’t win.  Sometimes domination is more important to people than money.  It was like living in a pot of water where the temperature was being heated up slowly, and now it was approaching the boiling point.  It didn’t take the gift of prophecy to see this result coming.  Anyway, I was a pessimist by nature.

This is the way the story ends when you try too hard to cooperate—when you don’t put up enough of a fight, either with the vendor, the manager, or the officer who was boss to both you and the manager, and who already had put you in your place.  There’s much to be said for competitions.  They keep you on your toes.  They toughen you.